Carnival Corporation has recently placed into service some of the largest cruise
ID: 2509180 • Letter: C
Question
Carnival Corporation has recently placed into service some of the largest cruise ships in the world. One of these ships, the Carnival Glory, can hold up to 3,000 passengers nd cost $510 million to build. Assume the following dditional information: *The average occupancy rate for the new ship is estimated to be 80% of capacity. There will be 300 cruise days per year The variable expenses per passenger are estimated to .The revenue per passenger is expected to be $310 per The fixed expenses for running the ship, other than be $75 per cruise day cruise day. depreciation, are estimated to be $78,000,000 per year. The ship has a service life of 10 years, with a salvage value of $85,000,000 at the end of 10 years. a. Determine the annual net cash flow from operating the cruise ship. . Determine the net present value of this investment, assuming a 12% minimum . Assume that Carnival decided to increase its price so that the revenue increased to $320 per passenger per cruise day. w uld this allow Carnival to earn a 15% rate f return on the cruise ship investment assuming no change in any of the other assumptions? Use the present value tables from your textbook or from another source.Explanation / Answer
Answer:-
A.
Capacity = 3000 Passengers
No. of Days = 300 p.a.
Occupancy = 80%
Contribution per Passenger = 310-75
= $ 235 per day
Total Contribution p.a. = 235*3000*80%*300 days
= $ 169.2 Million
Fixed Cost p.a. = $ 78 million
Annual Cash flow p.a. =169.2-78
= $ 91.2 Million
B.
Initial Investment = $ 510 Million
Scrap Value after 10 years = $ 85 Million
Interest Rate = 12%
NPV = 91.2 * PVAF (12%,10) + 85 * PVIF (12%,10) - 510
= $ (541.52 + 24.44 - 510) Million
= $ 55.95 Million
C.
Revenue per Passanger = $ 320
Cash Flow p.a. = (320-75)*3000*80%*300 - 78
= $ 98.4 Million
P.V. at 15% = 98.4 * PVAF (15%,10) + 85 * PVIF (15%,10) - 510
= 515 + 18.27 - 510
= $ 23.27 Million
Yes, By incresing Ravenue per Passenger to $ 320, Carnival can earn more than 15% Rate of return.